2017 (10) TMI 1659 - HC - Indian Laws

Dishonour of Cheque - Vicarious liability of directors under Section 138/141 of the Negotiable Instruments Act - Petitioners argues that the requisite averments to implicate the petitioners vicariously is not disclosed in the petition of complaint - HELD THAT - In 2005 (9) TMI 304 - SUPREME COURT , a Three-Judge Bench of the Apex Court held that in order to invoke the vicarious liability under Section 141 of the Negotiable Instruments Act against a Director of a company, it must be averred in the petition of complaint that the accused director was 'in-charge of and responsible to the accused-company for the running of its day-to-day business at the time of commission of the offence'. A whole-time director of a company is to be treated as a 'key managerial personnel' of the company and may be held to be an 'officer in default', where under the provisions of the Companies Act, an officer is liable for the payment of time or penalty for breaches committed by the company. Vicarious liability in respect of an offence under Section 138 of the Negotiable Instruments Act however is to be determined in terms of the deeming provision engrafted in Section 141 of the Negotiable Instruments Act. The deeming clauses, inter alia, fixes vicarious liability on such officers of the company who were in-charge of and responsible to the company for the running of its day-to-day business at the time of commission of offence. Merely because a person was a whole time, director of the company, no statutory presumption cannot be made under Section 141 of the Negotiable Instruments Act that he is incharge of the affairs of the company. The contentions of the learned counsel for the opposite party No. 2 cannot be accepted that merely because the petitioners were directors/additional directors of the company it has to be inferred that they were in-charge of the affairs of the company. It is also pertinent to note that specific overt ai ts of the petitioners have also not been articulated in the petition of complaint so as to establish the extent of their involvement in the affairs of the said company. Thus, continuation of the proceeding against the petitioners is in abuse, of the process of law and hence the impugned proceeding so far as the petitioners are concerned is quashed. Proceeding against other accused persons shall be proceeded with due expedition and be concluded at an early date preferably within six months from date of communication of this order without granting unnecessary adjournment to either of the parties. It is clarified in the event cogent and reliable evidence is adduced by the complainant disclosing ingredients of Section 141 of the Negotiable Instruments Act against the petitioners, it shall be open to the trial court to invoke Section 319 Cr.P.C. to bring the company back in the array of the accused directors in accordance with law. Petition disposed off.

Summary

Issues Involved:

1. Vicarious liability of directors under Section 138/141 of the Negotiable Instruments Act.
2. Adequacy of averments in the complaint to implicate directors.
3. Exemption from personal attendance under Section 205 Cr.P.C and its implications.

Issue-wise Detailed Analysis:

1. Vicarious Liability of Directors:

The primary issue in these revision petitions is whether the petitioners, who are directors of the accused company, can be held vicariously liable under Section 138/141 of the Negotiable Instruments Act. The prosecution case revolves around the dishonor of cheques issued by the accused company, leading to the initiation of proceedings against the company and its directors. The petitioners argue that the complaint lacks the necessary averments to establish their vicarious liability. The judgment references several precedents, including *SMS Pharmaceuticals Ltd. v. Neeta Bhalla* and *K.K. Ahuja v. V.K. Vora*, which emphasize that a director must be "in charge of and responsible to the company for the conduct of its business" at the time of the offence to be held liable. The court reiterates that merely holding the position of a director does not automatically imply liability under Section 141, unless it is specifically averred that the director was in charge of the company's day-to-day operations.

2. Adequacy of Averments in the Complaint:

The judgment scrutinizes the complaint to determine if it contains specific averments regarding the petitioners' roles in the alleged offence. It finds that while the petitioners are described as directors and responsible for the company's business, there is no specific mention of their involvement in the transaction leading to the offence. The court highlights that the absence of such specific averments fails to satisfy the requirements under Section 141, as established in *SMS Pharmaceuticals Ltd.* and *K.K. Ahuja*. Consequently, the court concludes that the continuation of proceedings against the petitioners constitutes an abuse of the process of law, leading to the quashing of proceedings against them.

3. Exemption from Personal Attendance:

In the related petitions, the issue of exemption from personal attendance under Section 205 Cr.P.C is addressed, particularly concerning petitioner No. 4. The petitioner challenged the condition imposed by the trial court requiring his presence during plea recording and examination under Section 313 Cr.P.C. The court allows for the plea and examination to be conducted through the petitioner's lawyer, provided it does not delay the trial. It warns that if the petitioner's counsel fails to participate, the exemption may be revoked, requiring the petitioner's personal attendance. This approach balances the petitioner's convenience with the need to avoid trial delays.

In conclusion, the judgment emphasizes the necessity of specific averments to establish directors' vicarious liability under the Negotiable Instruments Act. It quashes proceedings against the petitioners due to inadequate averments, while also addressing procedural aspects related to personal attendance exemptions.